The housing and construction
sector of each and every country is closely linked with its economy and the
overall social health of that country. Apart from being a key growth driver of
the economy, housing is the basic need of mankind. The improvement in the
social capital of a nation is another major contribution of housing development
other than GDP.
Impact of housing on GDP of India
According to several academic and
business studies, real estate investments are the important elements that
contribute to the overall economic growth of a country. The consistent housing
construction investments is a bulk of all real estate activity and proven to
have good short term and long term effects on any country's GDP growth.
It works like this, when new houses are build,
new basic facilities are required around those such as shopping, entertainment,
transport, lifestyle facilities, health care, education and other utilities.
These facilities also require investment and creates new employment
opportunities which in itself a contribution to the economy. According to the
Economic Survey of India, 2012-13, the real estate sector contributed 5.9% of
the India's total GDP in 2011-12, registering a growth of 7.2% from the
previous year. However India lacks Brazil and China in terms of amount of real
estate production and contribution to the GDP. Despite of small difference in
population of India and China, the variation in per capita real estate
production is more than 3.5 times. The per capita real estate production in
China is approximately USD 5,418 whereas it is USD 1,486 in India.
Impact of housing on employment
In India, housing and
construction sector is the 2nd largest employment generator after agriculture
out of which a 20-30% employment is shared by the real estate sector alone. In
the last decade from 1999-2000 to 2009-2010 the employment levels in the
construction sector increased from 17.54 million to 52.16 million as per the
estimates of Planning Commission. In the real estate, there were around 7.6
people employed and the number is expected to grow more than double up to 17
million in 2015.
Impact on foreign direct investments (FDI)
During April 2000 and September
2013, Indian real estate sector attracted a total FDI equity inflow of INR
1,052 bn (USD 22.8 bn), according to the Department of Industrial Policy &
Promotion 2 (DIPP). Real estate FDI equity inflow is the second highest amongst
all sectors and this amount was the 11.1% of the total FDI inflow in the
country in all sectors. These numbers outline the importance of the sector in
attracting valuable foreign capital to the country. However, in the past few
years, FDI investors were stuck in complicated approval processes, which made
the time lines of projects they invested in uncertain and their financial planning
estimates went wrong and their ROI is affected badly. However, the newly
elected NDA government in India is prioritizing the things and bringing more
transparency in the whole FDI approval systems.
Impact of housing on banking and finance sector
India's middle class population
which have greater access to the low interest rates mortgage loans and
increased disposable income are putting their money into the residential
developments/acquisition. Apart from the sentimental value attached to a house
in India, people are taking it as an investment option. Most of the Indian's
buy a home for themselves through savings not by the mortgage loans, which is
why India has one of the lowest mortgages to GDP ratio globally.
The total housing credit
outstanding in India stood at INR 7.59 billion by the end of March 2013. The
RBI categorizes housing amongst the six priority sectors and has mandated that
40% of a bank's disbursals need to cater to it. Despite most banks in India
reporting double digit growth in mortgage lending since the past few years, the
ratio of outstanding mortgage debt to total outstanding debts at the end of
Financial Year 2012-2013 stood at 9.2%, indicating the good quality of lending
to the sector, unlike the sub-prime loans witnessed in the U.S.A., which
resulted in the global financial meltdown of 2008. However, despite the
priority sector tag, lending to the lower most segments of the society availing
loans of up to INR 5 lakhs constituted just 22.75% of the total lending to
housing sector in 2010 as per data from public sector banks.
The loan outstanding in the real
estate sector is also lower compared to other countries that have recorded real
estate loans outstanding as high as 30%. The real estate market in India faces
liquidity issues due to the cyclical nature of the sector and erratic supply.
Multiplier effect on other sectors
Apart from its direct
contribution to the GDP, FDI, employment and finance sector, the housing
development also has a positive impact on the other sectors in the economy. As
per LIC Housing Finance Limited (LICHFL), 78% of the sum spent on construction
of a housing unit in India gets added back directly to the India's GDP by the
virtue of spending on building material, architectural and interior designing,
landscaping and even financing institutions.
Housing industry in terms of
linkage to other industries ranks 4 in the whole economy with over 300
ancillary industries are linked to it either through forward or backward
linkage. This huge linkage promotes the investment and employment at several
levels in these industries as well.